China’s latest tariff hike is the most hard-hitting response against the tariffs slapped on countries worldwide by the US. - Reuters
SINGAPORE: China will raise tariffs on US goods to 84 per cent, up from the 34 per cent previously announced, in a dramatic escalation of the trade war between the world’s two largest economies.
China’s latest tariff hike, announced on April 9 and effective from April 10, is by far the most hard-hitting response against the tariffs that the United States had slapped on countries worldwide.
The salvo comes after the US had imposed an added 84 per cent tariff on Chinese goods from April 9, bringing the total tariff rate imposed on China during the current Donald Trump presidency to a whopping 104 per cent.
Beijing’s hardline response contrasts with that of other countries. Phones have been ringing off the hook at the White House as leaders from across the world call to ask for talks to defray the tariffs.
More than 70 countries have approached the US, including Malaysia, whose Prime Minister Anwar Ibrahim said his country and Asean partners will be sending officials to Washington, DC, for negotiations.
The European Union is another major power to have retaliated against the US tariffs. On April 9, the EU said it will impose duties, mostly of 25 per cent, on some US goods from April 15.
Trade tensions between China and the US have spilled over into other areas. On April 9, China’s Ministry of Culture and Tourism issued a travel warning to its citizens about travelling to the US, noting the “recent deterioration” of China-US trade relations and the security situation in the US.
China’s uncompromising stance against the US tariffs has sparked warnings from foreign observers that this could escalate the trade war and further drag down the global economy.
But Chinese analysts tell The Straits Times that Beijing has its rationale for choosing a strong response.
“The US has slapped China on the face with the April 2 tariffs. If China sits down and talks right after being slapped, it’s a sign of weakness, and the US will eat it alive at the negotiating table,” said Qiu Mingda, a senior analyst with US-based consultancy firm Eurasia Group.
Agreeing, Guo Shan, a partner with Chinese consultancy firm Hutong Research, said: “China’s strategy is: escalate to de-escalate.”
She explained that the tariffs that the US has imposed on China are so high that even if Beijing manages to negotiate them down a notch, it would not make much of a difference to the country’s importers and exporters.
“If we hit back, we may have a chance; if we don’t hit back, we won’t have a chance at all,” she said.
The chances of China surviving the trade war depend on two factors: How well it can bolster its own economy, and how the US’ talks with the other countries play out.
On the domestic front, analysts say that as long as China can stimulate sufficient domestic demand, it can offset the losses from its bilateral trade with the US and make itself an attractive market to other countries.
They expect China to start using the gunpowder that it has been keeping in reserve just for this moment.
“China’s confidence in its dealings with the US stems from its confidence that it can shore up its economy, something the US underestimated,” said Guo.
She pointed out that China’s central bank could cut the interest rate as early as at its next monthly announcement, which is in two weeks. The market also expects the Politburo, China’s elite decision-making body, to issue a stimulus of about 1 trillion to 2 trillion yuan (US$137 billion to US$273 billion) at its monthly meeting in April.
Qiu of Eurasia pointed to the recent actions that China has taken to stabilise the financial markets. For example, this week, Chinese sovereign wealth fund Central Huijin Investment and state-owned enterprises swooped into Chinese stock markets and mopped up shares to stop the bloodletting.
The other factor in China’s stand-off with the US is how the rest of the world will react.
Some foreign analysts have suggested that countries seeking access to US markets may be pressured into adopting policies unfavourable to China, such as imposing US-level tariffs on Chinese goods or restricting Chinese transshipments through their countries.
Overall, Chinese analysts believe that the situation is not so bleak.
Bo Zhengyuan, founding partner of research consultancy Plenum in Shanghai, said: “I don’t think it is a case of prisoners’ dilemma, in which China will end up being isolated and worse off while the other countries throw China under the bus in exchange for lesser tariffs.”
He noted that most experts are not hopeful that countries seeking talks with US can get a hefty tariff rate discount.
“What the US wants to do is to narrow its trade deficit. Many countries are at a development level in which they can only sell to the US but cannot afford to buy many US goods. That’s the reality,” he said.
Guo pointed out that as Trump needs the revenue from the tariffs to fund the tax cuts that he had promised and to plug a budget deficit, there is not much room for US tariffs to come down. Hence, countries are likely to walk away from the talks disappointed.
“After a while, these countries would ask themselves: Isn’t it better to do business with China than to negotiate with Trump?”
China appears keen to court its Asian neighbours. At a rare, high-level central work conference on neighbourhood diplomacy that ended on April 9, Xi Jinping pledged to “strengthen strategic bonds” with neighbouring countries and enhance supply chain ties.
He is expected to visit Vietnam, Malaysia and Cambodia next week in his first overseas visit of the year.
“South-East Asian countries like Vietnam will become a battleground for the US-China trade war,” said Qiu.
“Although China is a major trading and investment partner for these countries, so is the US. China will have to walk the talk in keeping its doors open for overseas trade and investment deals, if it wants to entice other countries to come over to its side,” he said. - The Straits TImes/ANN
